By Daniel Korleski, MBA
As an entrepreneur, there’s no doubt you’ve poured your heart and soul into building your business into what it is today. Although discussing an exit strategy might feel premature, it’s a critical part of your overall business plan. Your exit strategy can influence a host of your day-to-day decisions, whether you’re considering an IPO, strategic acquisitions, or a management buyout.
Of course, every entrepreneur will eventually transition out of their business, which makes advanced planning imperative to reach both your personal and professional goals. Shockingly, nearly half of entrepreneurs who plan to sell their businesses someday lack a formal owner succession plan. But why bother with an exit strategy? Well, for many, it could mean landing in a tax-favored position when the time comes to make a move.
Let’s dive into what Cobalt Private Wealth offers in our strategic exit-planning process so you’re ready and prepared for whatever the future holds.
Stage 1: Initial Discovery Meeting
Defining exit objectives and goals:
- What is your desired departure date?
- What are your income/financial security requirements?
- What exit routes are open to you?
Stage 2: Information Gathering
Personal financial analysis:
- Review existing financial, estate, and business plans.
- Determine gaps in each of these plans, if any.
- Discuss your wants and needs.
Stage 3: Determination of Business Value
Current valuation and the development of value drivers:
- Analyze each exit route to determine how to protect and increase business value and understand the tax implications of ownership transfer through sale, gift, and estate.
- Obtain a formal valuation performed by an independent third party to set a fair price for company stock based on a consistent methodology for valuing the stock in the future. Include a reasonable discount for lack of marketability and minority interest, if applicable. This provides a benchmark for buy–sell agreements and executive compensation, equity-based plans, etc.
Stage 4: Choosing an Exit/Transition Route
- Sell to an outside third party (financial or strategic buyer).
- Sell to employees using an Employee Stock Ownership Plan (ESOP)*.
- Sell the business to one or more key employees (management buyout).
- Sell to remaining shareholders.
- Transfer the company to a family member(s).
- Retain ownership but become a passive owner.
Stage 5: Implementation of Chosen Business Exit Route and Post-Transaction Servicing
- Engage shareholders and the company to execute the chosen business exit route (external or internal sale or transfer).
- Develop a contingency plan for the business (outline key succession management and be able to answer who will run the business in the event of a death or disability of current operational shareholders).
- Develop a contingency plan for the owner’s family (financial, estate, and charitable planning).
- Develop an ongoing servicing plan for the business and family (ongoing review to ensure that planning is being followed and to advise in the event of life changes within the family or succession management).
Create a Strategy With an Experienced Professional
Of course, navigating the ins and outs of a comprehensive succession plan can be challenging and daunting, to say the least. Many entrepreneurs excel at running their businesses but struggle with this next phase of succession planning. This is where a financial professional can play a vital role, as they guide owners through a clear and structured process, from start to finish.
At Cobalt Private Wealth, we’ve supported countless clients through the complexities of exiting their business and are prepared to assist you in navigating these nuanced decisions. Whatever the next chapter holds, we’re here to help. Reach out to me at danielkorleski@cobaltprivatewealth.com or 719-332-3863 to schedule a meeting and begin the journey.
About Dan
Daniel Korleski is the President & CEO for Cobalt Private Wealth, where he helps his clients grow, manage, and protect their wealth so they can work toward a stronger financial future. With over 30 years of experience in the financial services industry, Dan has served as the managing director for Investment Trust Company, chief investment officer for the Wealth Management Group at American National Bank in Denver, and regional investment manager for the Greater Colorado Region of the Private Bank at Wells Fargo, where he oversaw the management of over $2 billion. In 2008, he was appointed by the mayor of Colorado Springs to the City’s Investment Advisory Committee. Dan holds an MBA in investment management from Midwestern State University in Wichita Falls, Texas, a Bachelor of Science in Finance from Florida State University, and is a member of both the CFA Society Colorado and The Financial Planning Association.
Dan loves to give of his time to his community and is currently serving as the Board Chair of Catholic Charities of Central Colorado and oversees the Homebound Ministry at St. Paul Catholic Church. He has also served as Chair of the Board of Trustees of Pikes Peak Hospice Foundation, President of the Broadmoor Rotary Club, and Vice President of the Board for the Pikes Peak Chapter of Trout Unlimited. Dan was born and raised in Spain and is fluent in Spanish. To learn more about Dan, connect with him on LinkedIn.
